# 1911 Encyclopædia Britannica/Austria-Hungary/History Ic

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The war of 1866 began a new era in the history of the Austrian empire. By the treaty of Prague (August 23, 1866) the emperor surrendered the position in Germany which his ancestors had held for so many centuries; Austria and Tirol, Bohemia and Salzburg, ceased to be German, and eight million Germans were cut off from all political union with their fellow-countrymen. At the Establishment of the dual monarchy. same time the surrender of Venetia completed the work of 1859, and the last remnant of the old-established Habsburg domination in Italy ceased. The war was immediately followed by a reorganization of the government. The Magyar nation, as well as the Czechs, had refused to recognize the validity of the constitution of 1861 which had established a common parliament for the whole empire; they demanded that the independence of the kingdom of Hungary should be restored. Even before the war the necessity of coming to terms with the Hungarians had been recognized. In June 1865 the emperor Francis Joseph visited Pest and replaced the chancellors of Transylvania and Hungary, Counts Francis Zichy and Nadásdy, supporters of the February constitution, by Count Majláth, a leader of the old conservative magnates. This was at once followed by the resignation of Schmerling, who was succeeded by Count Richard Belcredi. On the 20th of September the Reichsrath was prorogued, which was equivalent to the suspension of the constitution; and in December the emperor opened the Hungarian diet in person, with a speech from the throne that recognized the validity of the laws of 1848. Before any definite arrangement as to their re-introduction could be made, however, the war broke out; and after the defeats on the field of battle the Hungarian diet was able to make its own terms. They recognized no union between their country and the other parts of the monarchy except that which was based on the Pragmatic Sanction.[1] All recent innovations, all attempts made during the last hundred years to absorb Hungary in a greater Austria, were revoked. An agreement was made by which the emperor was to be crowned at Pest and take the ancient oath to the Golden Bull; Hungary (including Transylvania and Croatia) was to have its own parliament and its own ministry; Magyar was to be the official language; the emperor was to rule as king; there was to be complete separation of the finances; not even a common nationality was recognized between the Hungarians and the other subjects of the emperor; a Hungarian was to be a foreigner in Vienna, an Austrian a foreigner in Budapest. A large party wished indeed that nothing should be left but a purely personal union similar to that between England and Hanover. Deák and the majority agreed, however, that there should be certain institutions common to Hungary and the rest of the monarchy; these were—(1) foreign affairs, including the diplomatic and consular service; (2) the army and navy; (3) the control of the expenses required for these branches of the public service.

Recognizing in a declaratory act the legal existence of these common institutions, they also determined the method by which they should be administered. In doing so they carried out with great exactitude the principle of dualism, establishing in form a complete parity between Hungary on one side and the other territories of the king on the other. They made it a condition Delegations. that there should be constitutional government in the rest of the monarchy as well as in Hungary, and a parliament in which all the other territories should be represented. From both the Hungarian and the Austrian parliament there was to be elected a Delegation, consisting of sixty members; to these Delegations the common ministers were to be responsible, and to them the estimates for the joint services were to be submitted. The annual meetings were to be held alternately in Vienna and in Pest. They were very careful that these Delegations should not overshadow the parliaments by which they were appointed. The Delegations were not to sit together; each was to meet separately; they were to communicate by writing, every document being accompanied by a translation in Magyar or German, as the case might be; only if after three times exchanging notes they failed to agree was there to be a common session; in that case there would be no discussion, and they were to vote in silence; a simple majority was sufficient. There were to be three ministers for common purposes—(1) for foreign affairs; (2) for war; (3) for finance; these ministers were responsible to the Delegations, but the Delegations were really given no legislative power. The minister of war controlled the common army, but even the laws determining the method by which the army was to be recruited had to be voted separately in each of the parliaments. The minister of finance had to lay before them the common budget, but they could not raise money or vote taxes; after they had passed the budget the money required had to be provided by the separate parliaments. Even the determination of the proportion which each half of the monarchy was to contribute was not left to the Delegations. It was to be fixed once every ten years by separate committees chosen for that purpose from the Austrian Reichsrath and the Hungarian parliament, the so-called Quota-Deputations. In addition to these "common affairs" the Hungarians, indeed, recognized that there were certain other matters which it was desirable should be managed on identical principles in the two halves of the monarchy—namely, customs and excise currency; the army and common railways. For these, however, no common institutions were created; they must be arranged by agreement; the ministers must confer and then introduce identical acts in the Hungarian and the Austrian parliaments.

The main principles of this agreement were decided during Financial settlement. the spring of 1867; but during this period the Austrians were not really consulted at all. The negotiations on behalf of the court of Vienna were entrusted to Beust, whom the emperor appointed chancellor of the empire and also minister-president of Austria. He had no previous experience of Austrian affairs, and was only anxious at once to bring about a settlement which would enable the empire to take a strong position in international politics. In the summer of 1867, however (the Austrian Reichsrath having met), the two parliaments each elected a deputation of fifteen members to arrange the financial settlement. The first matter was the debt, amounting to over 3000 million gulden, in addition to the floating debt, which had been contracted during recent years. The Hungarians laid down the principle that they were in no way responsible for debts contracted during a time when they had been deprived of their constitutional liberties; they consented, however, to pay each year 29½ million gulden towards the interest. The whole responsibility for the payment of the remainder of the interest, amounting annually to over a hundred million gulden, and the management of the debt, was left to the Austrians. The Hungarians wished that a considerable part of it should be repudiated. It was then agreed that the two states should form a Customs Union for the next ten years; the customs were to be paid to the common exchequer; all sums required in addition to this to meet the expenses were to be provided as to 30% by Hungary and as to 70% by Austria. After the financial question had been thus settled, the whole of these arrangements were then, on the 21st and the 24th of December 1867, enacted by the two parliaments, and the system of dualism was established.

The acts were accepted in Austria out of necessity; but no parties were really satisfied. The Germans, who accepted the principle of dualism, were indignant at the financial arrangements; for Hungary, while gaining more than an equal share of power, paid less than one-third of the common expenses. On the other hand, according to British ideas of taxable capacity, Hungary paid, and still pays, more than her share. The Germans, however, could at least hope that in the future the financial arrangements might be revised; the complaints of the Slav races were political, and within the constitution there was no means of remedy, for, while the settlement gave to the Hungarians all that they demanded, it deprived the Bohemians or Galicians of any hope that they would be able to obtain similar independence. Politically, the principle underlying the agreement was that the empire should be divided into two portions; in one of these the Magyars were to rule, in the other the Germans; in either section the Slav races—the Serbs and Croatians, the Czechs, Poles and Slovenes—were to be placed in a position of political inferiority.[2]

The logical consistency with which the principle of Dualism was carried out is shown in a change of title. By a letter to Beust of the 14th of November 1868 the emperor ordered that he should henceforward be styled, not as before "Emperor of Austria, King of Hungary, King of Bohemia, &c.," but "Emperor of Austria, King of Bohemia, &c., and Apostolic King of Hungary," thereby signifying the separation of the two districts over which he rules. His shorter style is "His Majesty the Emperor and King," and "His Imperial and Apostolic Royal Majesty"; the lands over which he rules are called "The Austrian-Hungarian Monarchy" or "The Austrian-Hungarian Realm." The new terminology, "Imperial and Royal" (Kaiserlich und Königlich), has since then been applied to all those branches of the public service which belong to the common ministries; this was first the case with the diplomatic service; not till 1889 was it applied to the army, which for some time kept up the old style of Kaiserlich-Königlich; in 1895 it was applied to the ministry of the imperial house, an office always held by the minister for foreign affairs. The minister for foreign affairs was at first called the Reichskanzler; but in 1871, when Andrássy succeeded Beust, this was given up in deference to Hungarian feeling, for it might be taken to imply that there was a single state of which he was minister. The old style Kaiserlich-Königlich, the "K.K." which has become so familiar through long use, is still retained in the Austrian half of the monarchy. There are, therefore, e.g., three ministries of finance: the Kaiserlich und Königlich for joint affairs; the Kaiserlich-Königlich for Austrian affairs; the Királyé for Hungary.

The settlement with Hungary consisted then of three parts:—(1) Common affairs. the political settlement, which was to be permanent and has since remained part of the fundamental constitution of the monarchy; (2) the periodical financial settlement, determining the partition of the common expenses as arranged by the Quota-Deputations and ratified by the parliaments; (3) the Customs Union and the agreement as to currency—a voluntary and terminable arrangement made between the two governments and parliaments. The history of the common affairs which fall under the management of the common ministries is, then, the history of the foreign policy of the empire and of the army. It is with this and this alone that the Delegations are occupied, and it is to this that we must now turn. The annual meetings call for little notice; they have generally been the occasion on which the foreign minister has explained and justified his policy; according to the English custom, red books, sometimes containing important despatches, have been laid before them; but the debates have caused less embarrassment to the government than is generally the case in parliamentary assemblies, and the army budget has generally been passed with few and unimportant alterations.

For the first four years, while Beust was chancellor, the Foreign policy. foreign policy was still influenced by the feelings left by the war of 1866. We do not know how far there was a real intention to revenge Königgrätz and recover the position lost in Germany. This would be at least a possible policy, and one to which Beust by his previous history would be inclined. There were sharp passages of arms with the Prussian government regarding the position of the South German states; a close friendship was maintained with France; there were meetings of the emperor and of Napoleon at Salzburg in 1868, and the next year at Paris; the death of Maximilian in Mexico cast a shadow over the friendship, but did not destroy it. The opposition of the Hungarians and financial difficulties probably prevented a warlike policy. In 1870 there were discussions preparatory to a formal alliance with France against the North German Confederation, but nothing was signed.[3] The war of 1870 put an end to all ideas of this kind; the German successes were so rapid that Austria was not exposed to the temptation of intervening, a temptation that could hardly have been resisted had the result been doubtful or the struggle prolonged. The absorption of South Germany in the German empire took away the chief cause for friction; and from that time warm friendship, based on the maintenance of the established order, has existed between the two empires. Austria gave up all hope of regaining her position in Germany; Germany disclaimed all intention of acquiring the German provinces of Austria. Beust's retirement in 1871 put the finishing touch on the new relations. His successor, Count Andrássy, a Hungarian, established a good understanding with Bismarck; and in 1872 the visit of the emperor Francis Joseph, accompanied by his minister, to Berlin, was the final sign of the reconciliation with his uncle. The tsar was also present on that occasion, and for the next six years the close friendship between the three empires removed all danger of war. Three years later the full reconciliation with Italy followed, when Francis Joseph consented to visit Victor Emmanuel in Venice.

The outbreak of disturbance in the Balkans ended this period The Eastern question. of calm. The insurrection in Bosnia and Herzegovina immediately affected Austria; refugees in large numbers crossed the frontier and had to be maintained by the government. The political problem presented was a very difficult one. The sympathy of the Slav inhabitants of the empire made it impossible for the government of Vienna to regard with indifference the sufferings of Christians in Turkey. Active support was impossible, because the Hungarians, among whom the events of 1848 had obliterated the remembrance of the earlier days of Turkish conquest, were full of sympathy for the Turks. It was a cardinal principle of Austrian policy that she could not allow the erection of new Slav states on her southern frontier. Moreover, the disturbances were fomented by Russian agents, and any increase of Russian influence (for which the Pan-Slav party was working) was full of danger to Austria. For a time the mediation of Germany preserved the good understanding between the two eastern empires. In 1875 Andrássy drafted a note, which was accepted by the powers, requiring Turkey to institute the reforms necessary for the good government of the provinces. Turkey agreed to do this, but the insurgents required a guarantee from the Powers that Turkey would keep her engagements. This could not be given, and the rebellion continued and spread to Bulgaria. The lead then passed to Russia, and Austria, even after the outbreak of war, did not oppose Russian measures. At the beginning of 1877 a secret understanding had been made between the two powers, by which Russia undertook not to annex any territory, and in other ways not to take steps which would be injurious to Austria. The advance of the Russian army on Constantinople, however, was a serious menace to Austrian influence; Andrássy therefore demanded that the terms of peace should be submitted to a European conference, which he suggested should meet at Vienna. The peace of San Stefano violated the engagements made by Russia, and Andrássy was therefore compelled to ask for a credit of 60 million gulden and to mobilize a small portion of the army; the money was granted unanimously in the Hungarian Delegation, though the Magyars disliked a policy the object of which appeared to be not the defence of Turkey against Russia, but an agreement with Russia which would give Austria compensation at the expense of Turkey; in the Austrian Deputation it was voted only by a majority of 39 to 20, for the Germans were alarmed at the report that it would be used for an occupation of part of the Turkish territory.

The active share taken by Great Britain, however, relieved Bosnia and Herzegovina. Austria from the necessity of having recourse to further measures. By an arrangement made beforehand, Austria was requested at the congress of Berlin to undertake the occupation and administration of Bosnia and Herzegovina—an honourable but arduous task. The provinces could not be left to the Turks; Austria could not allow them to fall under Russian influence. The occupation was immediately begun, and 60,000 Austrian troops, under the command of General Philippovich,[4] crossed the frontier on the 29th of July. The work was, however, more difficult than had been anticipated; the Mahommedans offered a strenuous resistance; military operations were attended with great difficulty in the mountainous country; 200,000 men were required, and they did not succeed in crushing the resistance till after some months of obstinate fighting. The losses on either side were very heavy; even after the capture of Serajevo in August, the resistance was continued; and besides those who fell in battle, a considerable number of the insurgents were put to death under military law. The opposition in the Delegations, which met at the end of the year, was so strong that the government had to be content with a credit to cover the expenses for 1879 of less than half what they had originally asked, and the supplementary estimate of 40,000,000 gulden for 1878 was not voted till the next year. In 1879 the Porte, after long delay, recognized the occupation on the distinct understanding that the sovereignty of the sultan was acknowledged. A civil administration was then established, the provinces not being attached to either half of the empire, but placed under the control of the joint minister of finance. The government during the first two years was not very successful; the Christian population were disappointed at finding that they still had, as in the old days, to pay rent to the Mahommedan begs. There were difficulties also between the Roman Catholics and the members of the Greek Church. In 1881 disturbances in Dalmatia spread over the frontier into Herzegovina, and another expedition had to be sent to restore order. When this was done Benjamin de Kallay was appointed minister, and under his judicious government order and prosperity were established in the provinces. In accordance with another clause of the treaty of Berlin, Austria was permitted to place troops in the sanjak of Novi-Bazar, a district of great strategic importance, which separated Servia and Montenegro, and through which the communication between Bosnia and Salonica passed. This was done in September 1879, an agreement with Turkey having specified the numbers and position of the garrison. Another slight alteration of the frontier was made in the same year, when, during the delimitation of the new frontier of Montenegro, the district of Spizza was incorporated in the kingdom of Dalmatia.

The congress of Berlin indirectly caused some difficulties with Italy and the Irredentists. Italy. In that country was a large party which, under the name of the "Irredentists," demanded that those Italian-speaking districts, South Tirol, Istria and Trieste, which were under Austrian rule, should be joined to Italy; there were public meetings and riots in Italy; the Austrian flag was torn down from the consulate in Venice and the embassy at Rome insulted. The excitement spread across the frontier; there were riots in Trieste, and in Tirol it was necessary to make some slight movement of troops as a sign that the Austrian government was determined not to surrender any territory. For a short time there was apprehension that the Italian government might not be strong enough to resist the movement, and might even attempt to realize these wishes by means of an alliance with Russia; but the danger quickly passed away.

In the year 1879 the European position of the monarchy was Alliance with Germany. placed on a more secure footing by the conclusion of a formal alliance with Germany. In the autumn of that year Bismarck visited Vienna and arranged with Andrássy a treaty by which Germany bound herself to support Austria against an attack from Russia, Austria-Hungary pledging herself to help Germany against a combined attack of France and Russia; the result of this treaty, of which the tsar was informed, was to remove, at least for the time, the danger of war between Austria-Hungary and Russia. It was the last achievement of Andrássy, who had already resigned, but it was maintained by his successor, Baron Haymerle, and after his death in 1881 by Count Kalnóky. It was strengthened in 1882 by the adhesion of Italy, for after 1881 the Italians required support, owing to the French occupation of Tunis, and after five years it was renewed. Since that time it has been the foundation on which the policy of Austria-Hungary has depended, and it has survived all dangers arising either from commercial differences (as between 1880 and 1890) or national discord. The alliance was naturally very popular among the German Austrians; some of them went so far as to attempt to use it to influence internal policy, and suggested that fidelity to this alliance required that there should be a ministry at Vienna which supported the Germans in their internal struggle with the Slavs; they represented it as a national alliance of the Teutonic races, and there were some Germans in the empire who supported them in this view. The governments on both sides could of course give no countenance to this theory; Bismarck especially was very careful never to let it be supposed that he desired to exercise influence over the internal affairs of his ally. Had he done so, the strong anti-German passions of the Czechs and Poles, always inclined to an alliance with France, would have been aroused, and no government could have maintained the alliance. After 1880, the exertions of Count Kalnóky again established a fairly good understanding with Russia, as was shown by the meetings of Francis Joseph with the tsar in 1884 and 1885, but the outbreak of the Bulgarian question in 1885 again brought into prominence the opposed interests of Russia and Austria-Hungary. In the December of this year Austria-Hungary indeed decisively interfered in the war between Bulgaria and Servia, for at this time Austrian influence predominated in Servia, and after the battle of Slivnitza the Austro-Hungarian minister warned Prince Alexander of Bulgaria that if he advanced farther he would be met by Austro-Hungarian as well as Servian troops. But after the abdication of Alexander, Count Kalnóky stated in the Delegations that Austria-Hungary would not permit Russia to interfere with the independence of Bulgaria. This decided step was required by Hungarian feeling, but it was a policy in which Austria-Hungary could not depend on the support of Germany, for—as Bismarck stated—Bulgaria was not worth the bones of a single Pomeranian grenadier. Austria-Hungary also differed from Russia as to the position of Prince Ferdinand of Bulgaria, and during 1886-1887 much alarm was caused by the massing of Russian troops on the Galician frontier. Councils of war were summoned to consider how this exposed and distant province was to be defended, and for some months war was considered inevitable; but the danger was averted by the renewal of the Triple Alliance and the other decisive steps taken at this time by the German government (see Germany).[5]

Since this time the foreign policy of Austria-Hungary has been peaceful and unambitious; the close connexion with Germany has so far been maintained, though during the last few years it has been increasingly difficult to prevent the violent passions engendered by national enmity at home from reacting on the foreign policy of the monarchy; it would scarcely be possible to do so, were it not that discussions on foreign policy take place not in the parliaments but in the Delegations where the numbers are fewer and the passions cooler. In May 1895 Count Kalnóky had to retire, owing to a difference with Bánffy, the Hungarian premier, arising out of the struggle with Rome. He was succeeded by Count Goluchowski, the son of a well-known Polish statesman. In 1898 the expulsion of Austrian subjects from Prussia, in connexion with the Anti-Polish policy of the Prussian government, caused a passing irritation, to which Count Thun, the Austrian premier, gave expression. The chief objects of the government in recent years have been to maintain Austro-Hungarian trade and influence in the Balkan states by the building of railways, by the opening of the Danube for navigation, and by commercial treaties with Rumania, Servia and Bulgaria; since the abdication of King Milan especially, the affairs of Servia and the growth of Russian influence in that country have caused serious anxiety.

The disturbed state of European politics and the great increase The army. in the military establishments of other countries made it desirable for Austria also to strengthen her military resources. The bad condition of the finances rendered it, however, impossible to carry out any very great measures. In 1868 there had been introduced compulsory military service in both Austria and Hungary; the total of the army available in war had been fixed at 800,000 men. Besides this joint army placed under the joint ministry of war, there was in each part of the monarchy a separate militia and a separate minister for national defence. In Hungary this national force or honvéd was kept quite distinct from the ordinary army; in Austria, however (except in Dalmatia and Tirol, where there was a separate local militia), the Landwehr, as it was called, was practically organized as part of the standing army. At the renewal of the periodical financial and economic settlement (Ausgleich) in 1877 no important change was made, but in 1882 the system of compulsory service was extended to Bosnia and Herzegovina, and a reorganization was carried out, including the introduction of army corps and local organization on the Prussian plan. This was useful for the purposes of speedy mobilization, though there was some danger that the local and national spirit might penetrate into the army. In 1886 a law was carried in either parliament creating a Landsturm, and providing for the arming and organization of the whole male population up to the age of forty-two in case of emergency, and in 1889 a small increase was made in the annual number of recruits. A further increase was made in 1892-1893. In contrast, however, with the military history of other continental powers, that of Austria-Hungary shows a small increase in the army establishment. Of recent years there have been signs of an attempt to tamper with the use of German as the common language for the whole army. This, which is now the principal remnant of the old ascendancy of German, and the one point of unity for the whole monarchy, is a matter on which the government and the monarch allow no concession, but in the Hungarian parliament protests against it have been raised, and in 1899 and 1900 it was necessary to punish recruits from Bohemia, who answered the roll call in the Czechish zde instead of the German hier.

In those matters which belong to the periodical and terminable The Customs Union. agreement, the most important is the Customs Union, which was established in 1867, and it is convenient to treat separately the commercial policy of the dual state.[6] At first the customs tariff in Austria-Hungary, as in most other countries, was based on a number of commercial treaties with Germany, France, Italy, Great Britain, &c., each of which specified the maximum duties that could be levied on certain articles, and all of which contained a "most favoured nation" clause. The practical result was a system very nearly approaching to the absence of any customs duties, and for the period for which these treaties lasted a revision of the tariff could not be carried out by means of legislation. After the year 1873, a strong movement in favour of protective duties made itself felt among the Austrian manufacturers who were affected by the competition of German, English and Belgian goods, and Austria was influenced by the general movement in economic thought which about this time caused the reaction against the doctrines of free trade. Hungary, on the other hand, was still in favour of free trade, for there were no important manufacturing industries in that country, and it required a secure market for agricultural produce. After 1875 the commercial treaties expired; Hungary thereupon also gave notice to terminate the commercial union with Austria, and negotiations began as to the principle on which it was to be renewed. This was done during the year 1877, and in the new treaty, while raw material was still imported free of duty, a low duty was placed on textile goods as well as on corn, and the excise on sugar and brandy was raised. All duties, moreover, were to be paid in gold—this at once involving a considerable increase. The tariff treaties with Great Britain and France were not renewed, and all attempts to come to some agreement with Germany broke down, owing to the change of policy which Bismarck was adopting at this period. The result was that the system of commercial treaties ceased, and Austria-Hungary was free to introduce a fresh tariff depending simply on legislation, an "autonomous tariff" as it is called. With Great Britain, France and Germany, there was now only a "most favoured nation" agreement; fresh commercial treaties were made with Italy (1879), Switzerland and Servia (1881). During 1881-1882 Hungary, desiring means of retaliation against the duties on corn and the impediments to the importation of cattle recently introduced into Germany, withdrew her opposition to protective duties; the tariff was completely revised, protective duties were introduced on all articles of home production, and high finance duties on other articles such as coffee and petroleum. At the same time special privileges were granted to articles imported by sea, so as to foster the trade of Trieste and Fiume; as in Germany a subvention was granted to the great shipping companies, the Austrian Lloyd and Adria; the area of the Customs Union was enlarged so as to include Trieste, Istria and Dalmatia, as well as Bosnia and Herzegovina. In 1887 a further increase of duties was laid on corn (this was at the desire of Hungary as against Rumania, for a vigorous customs war was being carried on at this time) and on woollen and textile goods. Austria, therefore, during these years completely gave up the principle of free trade, and adopted a nationalist policy similar to that which prevailed in Germany. A peculiar feature of these treaties was that the government was empowered to impose an additional duty (Retorsionszoll) on goods imported from countries in which Austria-Hungary received unfavourable treatment. In 1881 this was fixed at 10% (5% for some articles), but in 1887 it was raised to 30 and 15% respectively. In 1892 Austria-Hungary joined with Germany, Italy, Belgium, and Switzerland in commercial treaties to last for twelve years, the object being to secure to the states of central Europe a stable and extended market; for the introduction of high tariffs in Russia and America had crippled industry. Two years later Austria-Hungary also arranged with Russia a treaty similar to that already made between Russia and Germany; the reductions in the tariff secured in these treaties were applicable also to Great Britain, with which there still was a most favoured nation treaty. The system thus introduced gave commercial security till the year 1903.

The result of these and other laws was an improvement in financial Reform of the Currency. conditions, which enabled the government at last to take in hand the long-delayed task of reforming the currency. Hitherto the currency had been partly in silver (gulden), the "Austrian currency" which had been introduced in 1857, partly in paper money, which took the form of notes issued by the Austro-Hungarian Bank. This institution had, in 1867, belonged entirely to Austria; it had branches in Hungary, and its notes were current throughout the monarchy, but the direction was entirely Austrian. The Hungarians had not sufficient credit to establish a national bank of their own, and at the settlement of 1877 they procured, as a concession to themselves, that it should be converted into an Austro-Hungarian bank, with a head office at Pest as well as at Vienna, and with the management divided between the two countries. This arrangement was renewed in 1887. In 1848 the government had been obliged to authorize the bank to suspend cash payments, and the wars of 1859 and 1866 had rendered abortive all attempts to renew them. The notes, therefore, formed an inconvertible paper currency. The bank by its charter had the sole right of issuing notes, but during the war of 1866 the government, in order to raise money, had itself issued notes (Staatsnoten) to the value of 312 million gulden, thereby violating the charter of the bank. The operation begun in 1892 was therefore threefold: (1) the substitution of a gold for a silver standard; (2) the redemption of the Staatsnoten; (3) the resumption of cash payments by the bank.

In 1867 Austria-Hungary had taken part in the monetary conference which led to the formation of the Latin Union; it was intended to join the Union, but this was not done. A first step, however, had been taken in this direction by the issue of gold coins of the value of eight and four gulden. No attempt was made, however, to regulate the relations of these coins to the "Austrian" silver coinage; the two issues were not brought into connexion, and every payment was made in silver, unless it was definitely agreed that it should be paid in gold. In 1879, owing to the continued depreciation of silver, the free coinage of silver was suspended. In 1892 laws introducing a completely new coinage were carried in both parliaments, in accordance with agreements made by the ministers. The unit in the new issue was to be the krone, divided into 100 heller; the krone being almost of the same value (24-25th) as the franc. (The twenty-krone piece in gold weighs 6.775 gr., the twenty-franc piece 6.453.) The gold krone was equal to .42 of the gold gulden, and it was declared equal to .5 of the silver gulden, so much allowance being made for the depreciation of silver. The first step towards putting this act into practice was the issue of one-krone pieces (silver), which circulated as half gulden, and of nickel coins; all the copper coins and other silver coins were recalled, the silver gulden alone being left in circulation. The coinage of the gold four- and eight-gulden was suspended. Nothing more could be done till the supply of gold had been increased. The bank was required to buy gold (during 1892 it bought over forty M. gulden), and was obliged to coin into twenty- or ten-krone pieces all gold brought to it for that purpose. Then a loan of 150 M. gulden at 4% was made, and from the gold (chiefly bar gold and sovereigns) which Rothschild, who undertook the loan, paid in, coins of the new issue were struck to the value of over 34 million kronen. This was, however, not put into circulation; it was used first for paying off the Staatsnoten. By 1894 the state was able to redeem them to the amount of 200 million gulden, including all those for one gulden. It paid them, however, not in gold, but in silver (one-krone pieces and gulden) and in bank notes, the coins and notes being provided by the bank, and in exchange the newly-coined gold was paid to the bank to be kept as a reserve to cover the issue of notes. At the same time arrangements were made between Austria and Hungary to pay off about 80 million of exchequer bills which had been issued on the security of the government salt-works, and were therefore called "salinenscheine." In 1899 the remainder of the Staatsnoten (112 million gulden) were redeemed in a similar manner. The bank had in this way acquired a large reserve of gold, and in the new charter which was (after long delay) passed in 1899, a clause was introduced requiring the resumption of cash payments, though this was not to come into operation immediately. Then from 1st January 1900 the old reckoning by gulden was superseded, that by krone being introduced in all government accounts, the new silver being made a legal tender only for a limited amount. For the time until the 1st of July 1908, however, the old gulden were left in circulation, payments made in them, at the rate of two kronen to one gulden, being legal up to any amount.

This important reform has thereby been brought to a satisfactory conclusion, and at a time when the political difficulties had reached a most acute stage. It is indeed remarkable that notwithstanding the complicated machinery of the dual monarchy, and the numerous obstacles which have to be overcome before a reform affecting both countries can be carried out, the financial, the commercial, and the foreign policy has been conducted since 1870 with success. The credit of the state has risen, the chronic deficit has disappeared, the currency has been put on a sound basis, and part of the unfunded debt has been paid off. Universal military service has been introduced, and all this has been done in the presence of difficulties greater than existed in any other civilized country.

Each of the financial and economic reforms described above The Ausgleich with Hungary. was, of course, the subject of a separate law, but, so far as they are determined at the general settlement which takes place between Austria and Hungary every ten years, they are comprised under the expression "Ausgleich" (compact or compromise), which includes especially the determination of the Quota, and to this extent they are all dealt with together as part of a general settlement and bargain. In this settlement a concession on commercial policy would be set off against a gain on the financial agreement; e.g. in 1877 Austria gave Hungary a share in the management of the bank, while the arrangement for paying the bonus on exported sugar was favourable to Austria; on the other hand, since the increased duty on coffee and petroleum would fall more heavily on Austria, the Austrians wished to persuade the Hungarians to pay a larger quota of the common expenses, and there was also a dispute whether Hungary was partly responsible for a debt of 80 M. gulden to the bank. Each measure had, therefore, to be considered not only on its own merits, but in relation to the general balance of advantage, and an amendment in one might bring about the rejection of all. The whole series of acts had to be carried in two parliaments, each open to the influence of national jealousy and race hatred in its most extreme form, so that the negotiations have been conducted under serious difficulties, and the periodical settlement has always been a time of great anxiety. The first settlement occupied two full years, from 1876, when the negotiations began, to June 1878, when at last all the bills were carried successfully through the two parliaments; and it was necessary to prolong the previous arrangements (which expired at the end of 1877) till the middle of 1878. First the two ministries had to agree on the drafts of all the bills; then the bills had to be laid before the two parliaments. Each parliament elected a committee to consider them, and the two committees carried on long negotiations by notes supplemented by verbal discussions. Then followed the debates in the two parliaments; there was a ministerial crisis in Austria, because the House refused to accept the tax on coffee and petroleum which was recommended by the ministers; and finally a great council of all the ministers, with the emperor presiding, determined the compromise that was at last accepted. In 1887 things went better; there was some difficulty about the tariff, especially about the tax on petroleum, but Count Taaffe had a stronger position than the Austrian ministers of 1877. Ten years later, on the third renewal, the difficulties were still greater. They sprang from a double cause. First the Austrians were determined to get a more favourable division of the common expenses; that of 1867 still continued, although Hungary had grown relatively in wealth.[7] Moreover, a proposed alteration in the taxes on sugar would be of considerable advantage to Hungary; the Austrians, therefore, demanded that henceforth the proportion should be not 68.6:31.4 but 58:42. On this there was a deadlock; all through 1897 and 1898 the Quota-Deputations failed to come to an agreement. This, however, was not the worst. Parliamentary government in Austria had broken down; the opposition had recourse to obstruction, and no business could be done. Their object was to drive out the Badeni government, and for that reason the obstruction was chiefly directed against the renewal of the Ausgleich; for, as this was the first necessity of state, no government could remain in office which failed to carry it through. The extreme parties of the Germans and the anti-Semites were also, for racial reasons, opposed to the whole system. When, therefore, the government at the end of 1897 introduced the necessary measures for prolonging the existing arrangements provisionally till the differences with Hungary had been settled, scenes of great disorder ensued, and at the end of the year the financial arrangements had not been prolonged, and neither the bank charter nor the Customs Union had been renewed. The government, therefore (Badeni having resigned), had to proclaim the necessary measures by imperial warrant. Next year it was even worse, for there was obstruction in Hungary as well as in Austria; the Quota-Deputations again came to no agreement, and the proposals for the renewal of the Bank charter, the reform of the currency, the renewal of the Customs Union, and the new taxes on beer and brandy, which were laid before parliament both at Vienna and Pest, were not carried in either country; this time, therefore, the existing arrangements had to be prolonged provisionally by imperial and royal warrant both in Austria and Hungary. During 1899 parliamentary peace was restored in Hungary by the resignation of Bánffy; in Austria, however, though there was again a change of ministry the only result was that the Czechs imitated the example of the Germans and resorted to obstruction so that still no business could be done. The Austrian ministry, therefore, came to an agreement with the Hungarians that the terms of the new Ausgleich should be finally proclaimed in Austria by imperial warrant; the Hungarians only giving their assent to this in return for considerable financial concessions.

The main points of the agreement were: (1) the Bank charter was to be renewed till 1910, the Hungarians receiving a larger share in the direction than they had hitherto enjoyed; (2) the Customs Union so far as it was based on a reciprocal and binding treaty lapsed, both sides, however, continuing it in practice, and promising to do so until the 31st of December 1907. Not later than 1901 negotiations were to be begun for a renewal of the alliance, and if possible it was to be renewed from the year 1903, in which year the commercial treaties would expire. If this were done, then the tariff would be revised before any fresh commercial treaties were made. If it were not done, then no fresh treaties would be made extending beyond the year 1907, so that if the Commercial Union of Austria and Hungary were not renewed before 1907, each party would be able to determine its own policy unshackled by any previous treaties. These arrangements in Hungary received the sanction of the parliament; but this could not be procured in Austria, and they were, therefore, proclaimed by imperial warrant; first of all, on 20th July, the new duties on beer, brandy and sugar; then on 23rd September the Bank charter, &c. In November the Quota-Deputations at last agreed that Hungary should henceforward pay ${\displaystyle 33{\tfrac {3}{49}}}$, a very small increase, and this was also in Austria proclaimed in the same way. The result was that a working agreement was made, by which the Union was preserved.

(J. W. He.)

### Endnotes

1 ^  For the separate political histories of Austria and Hungary see the section on II. Austria Proper, below, and Hungary; the present section deals with the history of the whole monarchy as such.

2 ^  Baron H. de Worms, The Austro-Hungarian Empire (London, 1876), and Beust's Memoirs.

3 ^  See General Le Brun, Souvenirs militaires (1866-1870, Paris, 1895); also, Baron de Worms, op. cit., and the article on Beust.

4 ^  Josef, Freiherr Philippović von Philippsberg (1818-1889), belonged to an old Christian noble family of Bosnia.

5 ^  Sir Charles Dilke, The Present Position of European Politics (London, 1887).

6 ^  Matlekovits, Die Zollpolitik der österreichisch-ungarischen Monarchie (Leipzig, 1891), gives the Hungarian point of view; Bazant, Die Handelspolitik Österreich-Ungarns (1875-1892, Leipzig, 1894).

7 ^  The only change was that as the military frontier had been given over to Hungary, Hungary in consequence of this addition of territory had to pay 2%, the remaining 98% being divided as before, so that the real proportion was 31.4 and 68.6.